Question

Discuss the advantages and disadvantages of charging a flat fee for collection of MSW and not charging consumers at the margin. Include a graph in your discussion.

Answer 1

If the consumers are charged a flat fee for collection of MSW instead of margin, there will be less impact on consumer in terms of disposal habits. They would have no behavioural change as they have to pay a flat rate. A margin payment would have induced to throw less garbage outside and using them for recycling as payment would increase with the amount of garbage. However, a flat rate cannot induce such incentives, as the consumers have to pay a fixed amount, whatever amount of garbage they throw.

Moreover, a flat rate generates insufficient amount of revenue for the municipality to cover complete cost for the solid waste management program. As seen in the diagram, the MC cost curve is upward rising, when consumers are charged at the margin. MC is horizontal when charged a flat rate. Therefore, quantity of garbage is higher for flat rate.